How to allocate assets? Experience from Green Corner’s “Asset Allocation Strategy Overview” Course
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Preface
Because I have begun to think about life financial planning in recent years, in addition to reading books (such as “[The Most Important Things in Investment] (https://lihi1.cc/daCSM)”), I also use Excel tables for management (such as “[Looking at Life Financial Planning from Project Management] : A watch to accompany you through life’s revolving door] (https://lihi1.cc/1xkto)”), in the cycle of implementation and review, I inevitably started to think about how to optimize the allocation. I learned that the well-known financial management writer [Green Corner] (https://goo.gl/zZnPW) offered an “Asset Allocation Strategy Overview” course, so I signed up for the course. The course was so popular, but I had to wait in line for three months to get it!
Key points of course content
This course lasts for one and a half days, with 9 units explained by Lujiao himself. The total duration is 9 hours, and the get out of class ends every hour. The course structure starts with the reasons for asset allocation, and then introduces several major investment tools and selection considerations. After reviewing the historical return rates, it designs a new investment portfolio and calculates the return rate, and further explains the investment method and subsequent rebalancing method. Finally, it is review and reflection. Here we share the main takeaways, giving you an overview of the course:
- Reasons for asset allocation
There are gains and losses in investment. When you invest, you also have risks. Therefore, some people think that “if you don’t invest, you don’t have to bear the psychological pressure.” However, “not investing” itself is the biggest risk, because your property will shrink due to inflation.
—What if everyone invests in stocks? Can’t you make a lot of money?
Although the returns from investing in stocks are higher than those in bonds, the risks are also relatively higher. However, as long as you make a proportional allocation in stocks and bonds, although the returns will be slightly reduced, the risks will also be greatly reduced.
—Then I just buy low and sell high, right?
How to ensure that you are always buying and selling at the best time? The “timing in and out” method is not valid in principle and has not happened 100% in practice. Even investment masters will fail. It should be admitted that the future is difficult to predict. Data also tells us that long-term (10 to 20 years) investment will be profitable. 2. Introduction to asset classes-stock market, bonds, REIT, raw materials
When you think of investing, you may first think of stocks. Indeed, long-term investment in the stock market can provide high returns and participate in the pulse of world growth. However, you must pay attention to the targets you choose: “Emerging market” stocks may not necessarily develop more vigorously. On the contrary, due to imperfect regulations and insufficient protection for investors, investment in global allocations can provide higher returns; if you really want to invest in a single country, the capital should be less than 5% of the total, and do not hold a large number of single stocks. (So don’t go crazy buying your company’s stock either)
“REIT (real estate investment trust)” and “raw materials” and stocks are both high-risk assets, and their correlation with the stock market has increased in recent years. The former is suitable for investors who need high dividends, while the latter is suitable for investors who are worried about inflation risks. Therefore, if you can only choose two assets, stocks + bonds are enough! “Stable” (bonds) and “high growth” (stock market) are the two most important characteristics (tools) of investment. The correlation between the two is also low and can be used as a hedge.
Investment is not only about making more money, but also about losing less. It is also an investment plan that is “possibly completed” rather than the “highest profit” investment plan. Therefore, choosing the investment tools carefully can improve the completion of the investment.
- Start asset allocation
In terms of mentality, design the allocation according to the financial goals required at each stage of life. Only bear necessary risks when investing. There is no need to excessively pursue high returns and high risks. After the design is completed, do a stress test and keep trying to calculate the ratio and expected results until you can accept it. Remember to make conservative estimates. It is better to err on the side of being overly conservative than to die of being overly optimistic.
In terms of tools, the investment portfolio composed of securities is not diversified enough and difficult to control. You can choose funds and ETFs. The performance of active funds and EFTs may not be better than that of index funds, and funds that have performed well in the past will not continue to perform well in the future. Therefore, in addition to indexing, when choosing a fund, you must also have low investment costs (handling fees, management fees…).
On the operational side, it is recommended that the proportion of a single target be at least 5%, determine the asset class and the proportion of high- and low-risk assets, and be sure to diversify various regions and assets; mechanized regular investment can spread time and reduce the average purchase price (but it does not cure the dead); although you can choose regular quotas or regular valuations, the latter requires greater perseverance and more flexible funds. Therefore, those who start to implement asset allocation can start with regular quotas.
The most important investment behavior is to stay in the market and take risks to get rewarded; the earlier you enter the market, the greater the chance of getting rewarded.
- After asset allocation
Regular investments and “rebalancing” can be reviewed every one to two years to control risks. Rebalancing method: invest new funds in the early stage, use cash dividends in the mid-term, and sell high-weight positions in the late stage.
If you really want to try the attractive high-return investment targets on the market (such as virtual currency), set the funds to be used within 5% of the assets and do not add any additional funds. Look at investment results from a holistic perspective rather than the performance of a single investment target.
The important thing is that life is limited. When allocating assets, you must consider your own life cycle, measure the cost of time, invest in your own work ability, and invest in the beautiful experiences of life. This is “efficient” investment.
Experience
I originally thought that this class was to teach you how to allocate assets and make financial plans for various aspects of life. After finishing the class, I realized that it is mainly about making the best allocation of several major investment tools selected after analysis, so as to increase benefits and reduce risks.
The course examines a lot of data and human psychology in detail, and you can feel the seriousness of Green Corner. There are also some investment philosophies and life philosophies that make investment and financial management not just chasing numbers, but also reflecting on life, such as “to make efficient investments” and “risk diversification”; it also reminds me of the reason why “invest in the umbrella industry and tourism industry at the same time” mentioned in the book “[Financial Management Methods You Should Know When You Get Your First Salary]” by Wei Laozi (https://goo.gl/NK2CzH). (By the way, it is recommended that novices in financial management start learning from this book)
In fact, the tuition for this class is not cheap, and I heard that the content of the class can be read in Green Corner’s book. On the one hand, I wanted to learn systematically and quickly, and on the other hand, I wanted to see the true face of God, so I signed up.
Moreover, I have to say that Green Corner’s lectures are very disciplined and the content of the lectures is precise. There are no redundant words that would make you think that it is pronounced by Google Translate. You must open your eyes wide and listen carefully. Each class always starts and ends at the right time, which makes people believe that “discipline” is definitely an important ability in financial management.
In this way, investment and financial management is not just investment and financial management, but training your own abilities through the cycle of asset allocation planning, execution, and re-examination (and when your money is invested, your heart is also invested).
So I have to tell myself that after investing in this course, I must study hard and apply it well, earn back the tuition fees, and see the results of my learning and growth!
For the full version of the course, please refer to Green Corner Financial Notes.
(Photo taken at: Seoul DMC)
Further reading
- Experiences from the Green Corners “Asset Allocation Strategy Overview” course: Use investment to train your discipline
- I read “Warren Buffett’s Investment Principles”: Value Investing in Stock Theology
- “The Soul of Money” Post-reading Experiment: A Fantasy Journey of 3,000 Yuan
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